Time to bet on long-duration bonds

Fall in bond yields will lead to capital appreciation

INVESTORS SHOULD NOW bet on long-term debt mutual funds to seize the opportunity to reap capital appreciation. As interim Budget has set lower borrowing target for next fiscal, it will reduce the supply of government paper and push down yields. And when bond yields fall, prices rise and long-term bond funds benefit the most.

Experts say investors should consider betting on long-term debt funds after the Budget for several reasons. For one, the projected fiscal deficit for FY25 and the expected decline in gross market borrowings indicate positive prospects for the bond markets.

Secondly, the Reserve Bank of India's consistent pause stance since April 2023 and the global bond inclusion will further enhance the flow to the debt segment, drive up demand and bolster investor confidence.

Nirav Karkera, head, Research, Fisdom, says these trends suggest that bond yields are likely to decrease further, potentially leading to capital appreciation for investors. "These factors collectively strengthen the case for investors to consider long-term debt funds, presenting an opportunity for potential capital gains,” he says.